Review Notes Ch 10

Review Notes Ch 10 - CHAPTER 10 Reporting and Analyzing...

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CHAPTER 10 Reporting and Analyzing Liabilities Study Objectives 1. Explain a current liability and identify the major types of current liabilities. 2. Describe the accounting for notes payable. 3. Explain the accounting for other current liabilities. 4. Identify the types of bonds. 5. Prepare the entries for the issuance of bonds and interest expense. 6. Describe the entries when bonds are redeemed. 7. Identify the requirements for the financial statement presentation and analysis of liabilities. 8. (Appendix 10A) Apply the straight-line method of amortizing bond discount and bond premium. 9. (Appendix 10B) Apply the effective-interest method of amortizing bond discount and bond premium. 10. (Appendix 10C) Describe the accounting for long-term notes payable. 10-1
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Chapter Outline Study Objective 1 - Explain a Current Liability and Identify the Major Types of Current Liabilities Liabilities are defined as “creditors' claims on total assets” and as “existing debts and obligations.” These claims, debts, and obligations must be settled or paid at some time in the future by the transfer of assets or services. A current liability is a debt that can reasonably be expected to be paid (1) from existing current assets or through the creation of other current liabilities, and (2) within one year or the operating cycle, whichever is longer. Debts that do not meet both of these criteria are classified as long-term liabilities . The different types of current liabilities include notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest. Study Objective 2 - Describe the Accounting for Notes Payable Obligations in the form of written notes are recorded as notes payable. Notes payable are often used instead of accounts payable because they give the lender written documentation of the obligation in case legal remedies are needed to collect the debt. usually require the borrower to pay interest and frequently are issued to meet short-term financing needs. are issued for varying periods of time. Notes due for payment within one year of the balance sheet date are generally classified as current liabilities. 10-2
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Example in the chapter concerning Cole Williams Co. borrowing $100,000 from the First National Bank on September 1, 2010. The note earns interest at a rate of 12% and matures in four months. On September 1 Cole Williams Co. receives $100,000 and makes the following journal entry: Sep. 1 Cash 100,000 Notes Payable 100,000 (To record issuance of 12%, 4-month note to First National Bank) The interest, which accrues over the life of the note, must be recorded when financial statements are prepared at December 31. Dec. 31
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This note was uploaded on 08/18/2010 for the course ACCOUNTING 6020 taught by Professor Seki during the Spring '10 term at FAU.

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Review Notes Ch 10 - CHAPTER 10 Reporting and Analyzing...

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